Home State Law Applied to Dissolved Corporation

In Robinson v. SSW, Inc. (2012), a California court applied Nebraska law to determine the liability of a dissolved Nebraska corporation for injuries the corporation allegedly caused to a California resident. Douglas G. Robinson died in November 2005 from mesothelioma, a cancer linked to asbestos exposure. A wrongful death action was filed in California alleging that the decedent was harmed by asbestos-containing boilers or boiler components.

SSW had dissolved in June 2002. Under Nebraska law, SSW could only be sued as a corporate entity for injuries arising out of its pre-dissolution activities within five years of its date of dissolution, or until June 2007. The lawsuit was not amended to add SSW as a defendant until February 2009, and the lawsuit therefore did not come within the five-year survivor­ship period permitted under Nebraska law.

Plaintiffs contended Nebraska law was not controlling. They contended that because SSW was licensed to do business in California and was being sued for injuries sustained in California, California’s corporate survival statute, Corporations Code § 2010, should govern instead of Nebraska’s statute. Corporations Code § 2010, unlike the Nebraska statute, imposes no time limitation on suing dissolved corporate entities for pre-dissolution business-related activities.

The court noted that California appellate courts disagree on whether § 2010, or the law of the state of domicile, applies to a dissolved foreign corporation sued in California such as SSW. The court also noted that a recent court of appeal decision was de-published pending California Supreme Court review.

After an extended discussion whether a foreign corporation could be considered to be organized under Division One of the California Corporations Code, the court concluded that a corporation duly incorporated and dissolved under Nebraska law did not come within the meaning of “corporation” as that term is defined for purposes of California’s General Corporation Law and therefore § 2010 did not apply to a foreign corporation.

The court said that no choice-of-law analysis was required in this case because no conflict existed between Nebraska law and California law with respect to corporate survivorship for the simple reason that § 2010 does not apply to foreign corporations. Rather, California, like Nebraska, looks to the law of the state of incorporation to determine the rights and duties of dissolved corporations.

Comment

While it is true that California Corporations Code § 2010 does not expressly impose any time limit on bringing an action against a dissolved corporation, once a corporation is dissolved, an action brought against it may only be enforced to the extent of its undistributed assets, including any insurance assets. The statute does not give any guidance as to what is meant by “insurance assets” but it probably includes coverage rights under any policies that remain in effect at the time of a claim.

In addition, an action brought against a dissolved corporation may be enforced against the shareholders but  only to the extent the corporate assets distributed to them upon dissolution of the corporation. Except for quiet title actions, all causes of action against a shareholder of a dissolved corporation are extinguished unless the claimant commences a proceeding to enforce the cause of action against the shareholder prior to the earlier of the expiration of the statute of limitations applicable to the cause of action or four years after the effective date of the dissolution of the corporation.

Thus, even if California law applied and even if the shareholders of SSW had received a liquidating distribution, the shareholders would have had no liability to the plaintiffs because of California’s four-year limitations period. If SSW had had an “occurrences” liability insurance policy, however, that might have constituted an “insurance asset” that could have provided a source of recovery if California law applied.